Another luxury apartment project with a price reduction of up to 45% shows that the luxury apartment segment is not facing an easy time. Although the real estate market has been forecasted to be quite bright, the massive investment in the luxury segment at one time is one of the reasons contributing to this difficulty.

Market pressure

Mr. Nguyen Cao Tri, General Director of Capella Holdings, said that The One Saigon project has about 96 units for sale since 2010, with selling prices of 5,500 - 6,000 USD/m2, expecting high profits. However, the results were very low, the number of units sold was lower than the inventory, meaning that in 5 years only 40 units were sold.

The apartment price reduction is a move to quickly recover capital. After a 45% reduction, the current reduction is about 70 million VND/m2. The investor also divided the payment progress into many installments and committed to renting in the first year with a rental price from 1,200 USD/month.

Apartment buildings accept losses to sell houses

In fact, this is not the first time the market has seen investors having to reduce apartment prices to escape the difficult market situation. In 2012, Mr. Duc shocked the market when he decided to drastically reduce apartment prices. Before Tet, Mr. Duc "revealed" that he would make a revolution in reducing project house prices after Tet, but the specific price has not been determined yet.

After Tet, the official price announced for the Phu Hoang Anh project decreased from 1,800 USD/m2 or more to 1,250 USD and the River View project in District 2 from an average of 2,000 USD to 1,350 USD/m2.

Oil and gas giant PVL reduced the selling price of 85 apartments at the Petro Vietnam Landmark project with a purchase price of 21.36 million VND/m2 (including VAT) to a selling price not lower than 15.5 million VND/m2. PVL reduced the price of 85 PetroVietnam Landmark apartments and accepted a loss of 70 billion VND. However, the number of apartments sold with this price reduction still did not meet expectations.

To invest in the Petro Vietnam Landmark project, PVL borrowed 100 billion VND from Lien Viet Bank, with repayment due on November 23, 2011. When the repayment due date comes, the interest rate will increase by 25%/year, the penalty for overdue payment will be 150%, equivalent to an interest rate of 35%/year, and the gross interest that PVL must pay is about 40%/year.

Interest on profit

After the period, investors rushed to build luxury apartments, many projects did not achieve the revenue as expected. The debt level of real estate investment by the end of 2012 in both project investment and secondary investment reached up to millions of billions of VND. When the bubble burst, businesses that were not able to restructure their finances fell into crisis. They held a bunch of illiquid assets and huge debts that generated interest every day.

“We see that real estate is no longer super profitable and is just like other commercial sectors, with gross profits only about 10%. This is the business philosophy in the new period that we have learned after a long period of market freeze,” said Mr. Tri.

Investors have a headache because of the profit problem.

“In fact, over the past 5 years, bank interest rates have eaten up all profits, so now we have learned a hard lesson: earn low profits but hope to sell quickly. Specifically, we only expect a gross profit of 10%, so we are selling at a 45% discount to sell quickly to recover capital. Because if we keep the price high but cannot sell, the bank will continue to eat away both capital and interest,” said a representative of an investor.

Paying the price for that period, many businesses are still struggling today. For example, Phat Dat Real Estate Corporation (PDR). The financial report for the period from 2009 - 2013 of this company had an inventory balance at the end of 2013 of 5,155 billion VND, including the projects: The EverRich 2 over 3,360 billion VND, The EverRich 3 nearly 1,489 billion VND, Nha Be over 225 billion VND, Long Thanh My nearly 81 billion VND.

The total capitalized interest for PDR projects has reached VND1,545 billion. Specifically, in 2009 it was over VND101 billion; in 2010 it was over VND143.2 billion; in 2011 it was over VND519 billion; in 2012 it was VND466 billion; in 2013 it was VND315 billion.

Song Da - Thang Long Joint Stock Company (STL) is the unit at the top of the list of units with tax arrears as of June 30, 2015, amounting to more than 375 billion VND. According to the 2014 business results, STL's consolidated profit after tax was negative 968 billion VND. Thus, this is the fourth consecutive year the company has been operating at a loss. As of December 31, 2014, STL's accumulated consolidated loss amounted to 1,484 billion VND, causing negative equity of 1,306 billion VND. STL had to sell part of the project in Ha Dong.

Since 2015, the real estate market in Ho Chi Minh City has been bustling again. CBRE's report shows that in 2015, the Ho Chi Minh City market had 78 new projects with nearly 42,000 apartments, an increase of 122% compared to the previous year, in which the mid-range and high-end segments accounted for an overwhelming proportion. With the strong increase in supply in recent times, many investors have been struggling because customers have been attracted by new projects.

The price reduction by the investor is a vital decision to escape the market. In the current context, the price reduction is also a warning to investors before building the project and increasing the apartment price too high compared to reality.

According to Vietnamnet